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LCD HDTV: What’s Happening “Upstream”?

October 20, 2008 | Author: Ibex Marketing

What’s happening to the LCD HDTV market? One way to look at what’s ahead is to look “upstream”. By this, I mean look at what’s been going on at the manufacturer level. They make the panels that will go into the televisions that will be sold this holiday season. So what’s happening upstream?

Orders are way below projections, and LCD panel factories from Taiwan to Korea have been throttling back production for months, trying to stem the tide of oversupply. DisplaySearch publishes a free PriceWise analysis of panel prices. From July to the first half of October, the typical price for a 1080p LCD HDTV panel (not the whole television; just the display panel) has dropped from $505 to $440. And it has dropped another $10 in the second half of October. That’s a total of nearly 15% in three months. Ouch!

Some analysts say that people will be buying plenty of LCD TVs this holiday season, but that they’ll be getting smaller, more affordable units instead. The manufacturing picture isn’t too cheery here, either. The price for a typical 32″ WXGA (720p) LCD TV panel was $285 in July, falling to $245 in the first half of October, and another $10 in the second half of the month. That’s nearly an 18% drop in three months.

Demand for flat panel TVs is what economists call “elastic“, which means that as the selling price goes down, the demand increases. The problem is that there was a good case of hardening of the consumer spending arteries in full swing by last summer as consumer confidence plummeted and concerns rose. The recent international credit melt-down has not done anything to improve the situation, which means that prices will have to drop a lot more in order to entice buyers to forget their worries about their job situation or mortgage payments and shell out some big bucks for a new TV when their old one is working fine. And those drops will be painful to the manufacturers and retailers.

A 15% to 18% drop in the cost of the major component of an LCD TV is a sign that manufacturers are getting desperate to move product. I stand by my prediction that we’re going to see a bloodbath in the flat panel TV market by the end of the year.